Supply Chain Risks: Third-Party Vendor Due Diligence

It is impossible to imagine modern business without partners — suppliers, distributors, logistics providers, and contractors. However, every new counterparty represents not only an opportunity for growth but also a potential risk. If a partner acts in bad faith, it can lead to tax assessments, VAT blocking, or even the initiation of criminal proceedings.

The tax authorities are increasingly analysing supply chains as a whole rather than focusing on isolated business transactions. Consequently, simply holding a signed contract and a delivery note is no longer sufficient; it is vital that the selection of counterparties is conducted with due diligence. This means that a taxpayer must demonstrate reasonable care and foresight when collaborating with partners to avoid the risk of engaging with fictitious or problematic suppliers. Such an approach does not impose an obligation to prove the legality of a counterparty's activities, but rather confirms the taxpayer's own good faith within the principle of "reasonable care."

In his blog for Liga Zakon Business, a tax solicitor from Riyako & Partners explains how to navigate these risks and vet third-party vendors to ensure the tax authorities have no grounds for inquiry.

The article covers:

• What a supply chain is and why it matters;
• The specific risks that arise within supply chains;
• Stages of third-party vendor due diligence;
• Compliance recommendations from a tax solicitor to protect your company.